Many central banks will discuss interest rates for the first time in the second half of the year or send a tight signal
This week, many central banks will hold their first interest rate meeting in the second half of the year. Among them, there are expectations of interest rate hikes in South Korea, which affects global market sentiment and may further strengthen the overall trend of global monetary policy tightening. Industry insiders analyze that the current economic recovery foundation of most economies is not yet solid, and multiple factors are adding up to push up the stickiness of inflation. Central banks of various countries are in a dilemma when it comes to policy decisions. South Korea may join the interest rate hike camp. This week, South Korea, Canada, and Switzerland will release the minutes of their latest monetary policy meetings. South Korea is expected to become an economy that joins the interest rate hike camp, following Europe, Japan, and New Zealand.
This week, many central banks will hold their first interest rate meeting in the second half of the year. Among them, there are expectations of interest rate hikes in South Korea, which affects global market sentiment and may further strengthen the overall trend of global monetary policy tightening. Industry insiders analyze that the current economic recovery foundation of most economies is not yet solid, and multiple factors are adding up to push up the stickiness of inflation. Central banks of various countries are in a dilemma when it comes to policy decisions. South Korea may join the interest rate hike camp This week, South Korea, Canada, and Switzerland will release the minutes of their latest monetary policy meetings. South Korea is expected to follow Europe, Japan, and New Zealand as an economy that enters the interest rate hike camp. The Bank of Korea will hold a monetary policy meeting on July 16. Bank of Korea Governor Shin Hyun-song recently publicly stated that the current strong growth of emerging industries continues to support the economy and it is necessary to tighten monetary policy. He said it is necessary to raise interest rates "at an appropriate time in the future" and that the timing of raising interest rates will depend on the degree of inflationary pressures, the pace of economic recovery and financial stability. Shin Hyun-song expects that the enhanced demand brought about by the economic recovery will offset the downward pressure of falling global oil prices, and consumer inflation will remain above the target level. Citibank predicts that the Bank of Korea will raise its benchmark interest rate by 25 basis points to 2.75% at this meeting. Citi economists said in a latest report that Shin Hyun-song may hint in a post-meeting statement or press conference that a gradual increase in interest rates will be adopted in the future to balance the relationship between inflation control and economic growth. The report predicts that the Bank of Korea will maintain the frequency of raising interest rates by 25 basis points every quarter in the second half of 2026, that is, once in July and October; it may raise interest rates again in January and April 2027. Bloomberg quoted experts as saying that rising inflation in South Korea, economic expansion driven by the semiconductor industry, and upward risks to the property market have pushed the Bank of Korea's policy stance to the most hawkish level in many years. The Bank of Korea will also weigh whether chip-driven growth is limited to a few industries. Currently, household debt in South Korea continues to rise, and housing prices in core cities continue to rise. Officials increasingly advocate that monetary policy needs to work in tandem with macro-prudential policies to prevent financial imbalances while avoiding dampening investment vitality in the field of artificial intelligence. The Bank of Canada and the Swiss National Bank are likely to keep interest rates unchanged this week. The resilience and expected improvement in the economies of the two countries increase the possibility of a shift in monetary policy towards a tighter orientation. Bloomberg quoted market analysts as saying that the prospects for the implementation of the U.S.-Mexico-Canada Agreement in the second half of the year will gradually become clearer, which will boost domestic investment and employment in Canada and create favorable conditions for the Bank of Canada to raise interest rates by 25 basis points to 2.5% at the end of the year. The Swiss National Bank, which has maintained zero interest rates for more than a year, recently stated that rising energy prices have also pushed up Swiss inflation, and that other factors have limited impact. However, at this stage, the Swiss National Bank is focusing its policy on foreign exchange intervention to deal with the pressure of excessive appreciation of the Swiss franc caused by geopolitical turmoil. Europe and the United States welcome more tightening motivations Affected by high energy prices and rising prices of upstream raw materials driven by the AI industry chain, inflation remains sticky in Europe and the United States, which has become an important reason for the tightening of monetary policy. The Federal Reserve recently released new chairman Kevin Warsh's first semi-annual monetary policy report on its official website. The report shows that U.S. inflation has further increased this spring, driven by factors such as the continued impact of U.S. tariff policies, rising energy prices due to conflicts in the Middle East, and surge in demand driven by AI infrastructure construction. The report points out that AI infrastructure construction continues to have strong demand for electricity, chips and other materials, creating price pressure in the near future. Peters, an economist at Goldman Sachs, calculated in the latest report that the triple effects of AI-driven memory price surges, software price increases, and electricity price increases have now increased the U.S. core PCE year-on-year inflation rate by more than 0.2 percentage points, and the figure is expected to rise to 0.5 percentage points by the end of the year. The report reiterated the Fed's commitment to maintaining price stability. In its report, the Fed proposed "another way of looking at inflation." By excluding "some of the effects of abnormal price movements," the censored average annual PCE inflation rate compiled by the Dallas Fed fell to 2.4% in May from 2.6% last May. According to the schedule, Warsh will attend House of Representatives and Senate committee hearings respectively on the 14th and 15th local time to accept a routine mid-year review of monetary policy.
In addition, the Federal Reserve also announced the recent establishment of five independent working groups. The leaders of the working groups include well-known scholars, former central bank officials and corporate executives. The working group will conduct assessments around monetary policy, balance sheet policy, economic data, productivity and employment, and inflation frameworks. Analysts said that Warsh's extensive introduction of external professionals to relevant working groups shows that this round of adjustments by the Fed not only focuses on the monetary policy formulation mechanism, but also focuses on issues such as artificial intelligence, productivity improvement, and data quality, highlighting the complexity of current policy formulation. The complexity of European policy arises from the risk of energy-induced inflation. The European Central Bank recently released the minutes of its June interest rate decision meeting, which showed that all members agreed that the risk of upward inflation in the euro area has increased significantly. The conflict in the Middle East has pushed up energy costs and lengthened the cycle of high prices. The market's prediction that the European Central Bank will raise interest rates three times throughout the year was also confirmed by discussions among officials attending the meeting. At the interest rate meeting in June, the European Central Bank raised the deposit rate by 25 basis points, the first rate increase in the past three years. Minute data showed that the Eurozone's adjusted CPI rose to 3.2% in May, core inflation rose to 2.5%, and service industry inflation reached 3.5%. Energy price increases have gradually been transmitted to the food, industrial products and service fields. Even if calculated according to the pace of this round of interest rate hikes, overall inflation will continue to be higher than the 2% policy target before the first half of 2027. Officials focused on potential risks in energy. If crude oil and natural gas prices fail to fall as expected in futures, inflationary stickiness will further intensify. Although the duration of this round of energy shocks is expected to be shorter than the 2022 energy crisis, the combination of global trade frictions, rising wages, and price increases in the service industry will increase the probability of another rebound in inflation. Middle East conflict boosts expectations for tightening monetary policy Bloomberg Economics analyzed the policy forecasts of 23 central banks around the world and pointed out that after the United States launched military strikes in the Middle East, the interest rate path of global central banks has now been raised compared with pre-war expectations, and this high level will remain for many years. Borrowing cost forecasts compiled by the agency show that the interest rate trajectory until 2028 will be as much as 0.5% or more higher than pre-war assumptions, whether measured by a composite indicator of global interest rates or an indicator of advanced economies. The expectation that global monetary policy will be tight stems from the continued evolution of inflation risks: on the one hand, the implementation of artificial intelligence will bring periodic inflation pressure; on the other hand, there is uncertainty about the navigation of the Strait of Hormuz, and energy disturbances continue to push up commodity prices. Even if the conflict in the Middle East eases, the cost pressure caused by the war will still be transmitted to businesses and residents for a period of time, superimposed on the high interest rate environment, giving rise to previously unforeseen economic pressure. Earlier this year, Bloomberg Economics predicted that the Fed would cut interest rates by a cumulative 1 percentage point by mid-2027, but now only one cut of 25 basis points is expected. The European Central Bank is expected to raise interest rates again to a level half a percentage point higher than originally planned, and then gradually lower interest rates. Jamie Rush, global head of economics at Bloomberg Economics, concluded, “After experiencing the inflationary shock during the epidemic period, central banks have generally taken a tough stance on inflation. In the face of another surge in price increases, even if it is only a short-lived phenomenon, the willingness to withdraw hawkish rhetoric appears to be limited. Even if oil prices fall, central bank speech indicators generally remain in the hawkish range.” However, Bloomberg Economics' outlook also shows that global economies are more resilient than expected to withstand high interest rates and have the ability to withstand successive external shocks. (
In addition, the Federal Reserve also announced the recent establishment of five independent working groups. The leaders of the working groups include well-known scholars, former central bank officials and corporate executives. The working group will conduct assessments around monetary policy, balance sheet policy, economic data, productivity and employment, and inflation frameworks. Analysts said that Warsh's extensive introduction of external professionals to relevant working groups shows that this round of adjustments by the Fed not only focuses on the monetary policy formulation mechanism, but also focuses on issues such as artificial intelligence, productivity improvement, and data quality, highlighting the complexity of current policy formulation. The complexity of European policy arises from the risk of energy-induced inflation. The European Central Bank recently released the minutes of its June interest rate decision meeting, which showed that all members agreed that the risk of upward inflation in the euro area has increased significantly. The conflict in the Middle East has pushed up energy costs and lengthened the cycle of high prices. The market's prediction that the European Central Bank will raise interest rates three times throughout the year was also confirmed by discussions among officials attending the meeting. At the interest rate meeting in June, the European Central Bank raised the deposit rate by 25 basis points, the first rate increase in the past three years. Minute data showed that the Eurozone's adjusted CPI rose to 3.2% in May, core inflation rose to 2.5%, and service industry inflation reached 3.5%. Energy price increases have gradually been transmitted to the food, industrial products and service fields. Even if calculated according to the pace of this round of interest rate hikes, overall inflation will continue to be higher than the 2% policy target before the first half of 2027. Officials focused on potential risks in energy. If crude oil and natural gas prices fail to fall as expected in futures, inflationary stickiness will further intensify. Although the duration of this round of energy shocks is expected to be shorter than the 2022 energy crisis, the combination of global trade frictions, rising wages, and price increases in the service industry will increase the probability of another rebound in inflation. Middle East conflict boosts expectations for tightening monetary policy Bloomberg Economics analyzed the policy forecasts of 23 central banks around the world and pointed out that after the United States launched military strikes in the Middle East, the interest rate path of global central banks has now been raised compared with pre-war expectations, and this high level will remain for many years. Borrowing cost forecasts compiled by the agency show that the interest rate trajectory until 2028 will be as much as 0.5% or more higher than pre-war assumptions, whether measured by a composite indicator of global interest rates or an indicator of advanced economies. The expectation that global monetary policy will be tight stems from the continued evolution of inflation risks: on the one hand, the implementation of artificial intelligence will bring periodic inflation pressure; on the other hand, there is uncertainty about the navigation of the Strait of Hormuz, and energy disturbances continue to push up commodity prices. Even if the conflict in the Middle East eases, the cost pressure caused by the war will still be transmitted to businesses and residents for a period of time, superimposed on the high interest rate environment, giving rise to previously unforeseen economic pressure. Earlier this year, Bloomberg Economics predicted that the Fed would cut interest rates by a cumulative 1 percentage point by mid-2027, but now only one cut of 25 basis points is expected. The European Central Bank is expected to raise interest rates again to a level half a percentage point higher than originally planned, and then gradually lower interest rates. Jamie Rush, global head of economics at Bloomberg Economics, concluded, “After experiencing the inflationary shock during the epidemic period, central banks have generally taken a tough stance on inflation. In the face of another surge in price increases, even if it is only a short-lived phenomenon, the willingness to withdraw hawkish rhetoric appears to be limited. Even if oil prices fall, central bank speech indicators generally remain in the hawkish range.” However, Bloomberg Economics' outlook also shows that global economies are more resilient than expected to withstand high interest rates and have the ability to withstand successive external shocks. (